Israel Chemicals Ltd. (TASE: ICL) is considering a further reduction in its investment in Israel, after its board of directors recently decided on the closure of its magnesium plant in Sodom in two years time, cuts and streamlining in its bromine business, and a halt in its $2.5 billion investment program. Israel Chemicals is now considering cutting back in the fertilizer and bromine sector in order to enable the company to implement the expected recommendations of the committee for evaluating the state's share of its natural resources, headed by Prof. Eytan Sheshinki. The committee is expected to deliver its final report soon, after submitting an interim report last May recommending that the company pay the state 42% royalties on excess profits, starting in 2017, making the company's total royalties and taxes paid to the state equal to 50% of its revenue.
The company's obvious large scale cutbacks in Israel are a response to the interim report, with the company saying that its planned investments will not be worthwhile if it has to pay such high royalties. This development has caused reconsideration by some of the committee members: they are now considering having the state waive tens of millions of shekels a year in taxes paid by the company in an effort to "sweeten the pill" for Israel Chemicals. Israel Chemicals, however is unimpressed, and is warning that "cosmetic changes" will not substantially change the field on which the company will play in two years. Even if the final report contains more complicated recommendations, the company believes that it will still have to pay more than any other company in the world in its industry, and the damage it will suffer as a result of the implementation of the Sheshinski 2 Committee will be destructive. In the past, a senior Israel Chemicals executive said that implementation of the recommendations would give the company leaders the message "not to invest in a place where the state charges the world's highest payments; most companies in Israel Chemicals industry pay 35-38% royalties on the average, and the average is 42%. A demand that we pay almost 60% of our revenue to the state makes it not worthwhile to invest in Israel. This is destructive damage."
Sheshinski declined to comment on the matter. In a petition to him, MK Dov Henin, chairman of the Knesset environmental lobby, called on him to reject what he called "Israel Chemicals pressure." "Both you personally and the other members of the committee are a now target for an all-out campaign by the wealthy. I call on you and your members to withstand it, and do what is necessary to stop the looting of natural resources and restore to the public the share it deserves." He added, "The royalties charged on Dead Sea resources should be increased, without settling for levying a tax on excess profits, which is very convenient for aggressive tax planning." According to Henin, "The company's impertinent threats to cut back its business in Israel should be rejected out of hand. Israel Chemicals 2013 net profit was $819 million, and it only recently approved a NIS 500 million dividend for its shareholders, headed by Idan Ofer."
Published by Globes [online], Israel business news - www.globes-online.com - on September 14, 2014
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